Principal writedown11/20/2022 ![]() The net result of the analysis is that forbearance achieves marginally lower losses for the taxpayer than forgiveness, although both forgiveness and forbearance reduce the borrower’s payment to the same affordable level, FHFA explained. In the event of a successful modification, FHFA determined that forbearance offers greater cash flows to the investor than forgiveness. In considering principal forgiveness, FHFA compared taxpayer losses from principal forgiveness versus principalįorbearance, an alternate approach the GSEs currently use in which no interest is charged on a portion of the underwater amount. He said FHFA did not conclude that ""principal reduction never serves the long-term interest of the taxpayer when compared to foreclosure,"" as the congressmen alleged. The lawmakers cited public statements by high-level officials at the Federal Reserve, championing principal forgiveness as a viable solution for heading off defaults and foreclosures, and they questioned FHFA's determination that reducing principal balances would not serve the best interests of the GSEs, taxpayers, and the housing market at large.Įdward DeMarco, acting director of FHFA, responded with a lengthy letter, supplemented with data charts, equations, and the findings of three separate staff analyses prepared over the past year. Tierney (D-Massachusetts) have been ""pressing for a subpoena"": to be issued to obtain this data from FHFA in order to evaluate the agency's reasoning for prohibiting principal reductions on Fannie and Freddie's loans. In response to a request from members of Congress, FHFA on Monday publicly disclosed the analysis that led the agency to exclude principal forgiveness from the menu of loss mitigation tools available to the GSEs. The ""Federal Housing Finance Agency"": (FHFA) says as of June 30, 2011, ""Fannie Mae"": and ""Freddie Mac"": held nearly 3 million first lien mortgages in which the borrower owed more on the loan that the home was worth.įHFA estimates principal forgiveness for all of these mortgages would require funding of almost $100 billion to pay down the loans to the value of the homes securing them. ![]()
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